proposed an increase in the present $2,000 limit to an amount between $25,000 and $100,000.17 It stated that a reduction in the number of wage determinations required would permit the Department's wage determination staff to (1) make more thorough investigations, (2) conduct more frequent detailed onsite surveys, and (3) more adequately resolve protests or problems that may arise in arriving at factual determinations.

The Legislative Research Department of the AFL-CIO has stated that the unions would strongly oppose any legislation calling for an increase in the $2,000 threshold. This opposition is based on the argument that an increase would result in significant reduction of DavisBacon Act protection for workers on small dollar value repair and painting contracts, the type of workers who most need protection.

RESPONSIBILITY FOR ENFORCEMENT

The Davis-Bacon Act does not expressly state who has responsibility for determining the act's applicability to a particular contract, although under Reorganization Plan No. 14 of 1950 18 the Secretary of Labor is authorized to prescribe standards and regulations to ensure coordination of administration and consistency of enforcement of the act. While the Reorganization Plan also authorizes the Secretary to conduct investigations to ensure consistent enforcement, the basic responsibility for enforcement apparently remains with the contracting agencies.19 The lack of clear guidance, and differences in views about enforcement responsibilities, continue to generate problems in the administration of the act.

Our review of contracting agencies disclosed that the day-to-day enforcement activities such as payroll inspections, employee interviews, and full-scale investigations are usually performed by persons responsible for the administration of contract provisions. Certain agencies-Department of Defense, AEC, and NASA-have labor relations specialists at

17 Note 6, supra, p. 37.

18 5 U.S.C. Appendix. The Department of Labor has issued regulations (29 CFR, Subtitle A, part 5) and an Investigative and Enforcement Manual setting forth procedures to be followed in enforcing the Davis-Bacon Act.

19 Ibid.; see also Comptroller General Decisions B-144901, Apr. 10, 1961; B-147602, Jan. 23, 1963: B-148076, July 26, 1963.

the headquarters level and throughout their various field activities who coordinate and guide contracting personnel in enforcement matters.

With few exceptions, the interviewed agencies declared that contracting personnel at the project site need to enforce all contract provisions, to ensure performance in accordance with contract requirements.

On the other hand, the Department of Labor stated that, while many of the major procurement agencies do have established staffs which carry out enforcement, many, particularly the newer ones, do not have this capability. These latter agencies are usually those involved with Federally assisted programs rather than direct Federal construction, and it is on such contracts that the Department of Labor's Wage and Hour Division is focusing its own enforcement effort.

An Assistant Administrator in the Department of Labor's Wage and Hour Division also stated that the enforcement of Davis-Bacon labor provisions would be more efficient if centralized in the Department because of the Department of Labor's general responsibility for and experience in enforcing other labor laws.20 He said the current level of effectiveness could not be maintained without additional staffing. The Department's San Francisco Regional Director, Employment Standards Administration, made a similar observation. He estimated that a 30 percent 21 increase in staff in that region would be necessary to achieve an acceptable level of compliance.

AUTHORITIES OF THE COMPTROLLER GENERAL AND THE DEPARTMENT OF LABOR UNDER THE ACT

Under Section 3 of the act,22 the Comptroller General is authorized to determine violations, impose debarment, and make wage adjustments. As he interprets the law, these provi

20 Memorandum from Warren D. Landis, Assistant Administrator, U.S. Department of Labor, to Horace E. Menasco, Administrator, U.S. Department of Labor, subject: "Proposal for Decentralization of Wage Determination Functions," Sept. 3, 1971.

21 Memorandum for the record, Study Group 2 visit to U.S. Department of Labor, Employment Standards Administration, San Francisco, California, July 13, 1971.

22 40 U.S.C. 276a-2.

sions place the authority and responsibility for such actions in his office.23

The Comptroller General has repeatedly held that the authority given the Secretary of Labor, under Reorganization Plan No. 14, does not include the power to make individual enforcement determinations or authoritative interpretative decisions. According to the Comptroller General, the actual administration and enforcement of the acts affected by the plan is the responsibility of the individual contracting agencies, and interpretative decisions of the Secretary of Labor have "advisory force only." 24 The Secretary of Labor, on the other hand, views his decisions as authoritative based on Reorganization Plan No. 14 and the "obvious intent of Congress" as reflected in section 10 of the Portal to Portal Act.25 The Solicitor of Labor testified in 1962 before the House Special Subcommittee on Labor 26 that "the result of this situation is to frustrate effective administration and enforcement of the contract labor standards laws."

In view of the difficulties created by the current situation, the Comptroller General has suggested that this Commission consider recommending legislation which would divest GAO of its administrative responsibilities in the Davis-Bacon Act and place those responsibilities in the procurement agencies and the Department of Labor. Essentially, his proposal would give the procurement agencies such responsibilities but would provide for appeal to the Department of Labor in certain limited instances.27

UNCERTAINTY AS TO COVERAGE OF THE ACT

The Comptroller General and the Secretary of Labor also disagree as to the application of the act in important areas. The Secretary of

23 U.S. Comptroller General, Decision B-161858, and Letter to the Secretary of Labor, Jan. 22, 1968, subject: Decision B-161858, October 11, 1967, Concerning LOFT and the Role of the General Accounting Office Under the Davis-Bacon Act. The Comptroller General does not assert this position with respect to the Service Contract Act and the Walsh-Healey Public Contracts Act, which direct the Comptroller General only to publish a debarred list pursuant to the recommendation of the procurement agency or the Secretary of Labor-a ministerial function; or the so-called Davis-Bacon "Related Acts."

24 U.S. Comptroller General, Decision B-144901, Apr. 10, 1961. 25 U.S. Solicitor of Labor, Opinion No. DB-1, Apr. 3, 1961. Hearings on the Administration of the Davis-Bacon Act, 87th Cong., 2d sess., pp. 831-832.

27 Comptroller General letter of Dec. 27, 1971 (attached 88 Appendix B).

Labor, for example, has taken the position that contracts for the manufacture or furnishing of elevators and generators which also call for certain installation work (like foundation preparation or pouring) may be subject to both the Public Contracts Act and the DavisBacon Act if the contract involves more than an "incidental" amount of erection or installation. Thus, under the Department of Labor interpretation, the Davis-Bacon Act would be applicable to the installation portion of a combination supply and installation contract, and the Walsh-Healey Act to the other work, depending upon the amount of required construction activities. 28

The Comptroller General, on the other hand, holds that the Davis-Bacon Act applies on the basis of the contract as a whole; that the act is not applicable to any part of the work to be performed under a contract if the contract is not "essentially" or "substantially" for construction.29

Contracting agencies having a volume of contracts involving both supply and installation work indicated that when the installation work exceeded $2,000, they were inclined to insert the Davis-Bacon Act stipulations for lack of guidelines from the Department of Labor on what constituted more than an "incidental" amount of such work. Where the agencies follow this practice, the supply contractor must either segregate his work force and pay Davis-Bacon wage rates to those workers performing the construction-type work or subcontract out that phase.

The absence of statutory definitions of critical words or phrases used in the act also has produced controversies which are unresolved. The act provides that every covered contract shall stipulate that the contractor or his subcontractor shall pay mechanics and laborers employed directly upon the "site of the work" at wage rates not less than those stated in the advertised specifications; but the act contains no definition of "site of the work." The Solicitor of Labor's opinions have given that term a broad interpretation to include the sites of job headquarters, storage yards, prefabrication or assembly yards, quarries or borrow pits,

28 See section 6(b), Rulings and Interpretations No. 8 under the Walsh-Healey Public Contracts Act and Solicitor of Labor's Opinion No. DB-20, Jan. 31, 1962.

20 U.S. Comptroller General, Opinion, B-150818(1), June 6, 1963.

and batch plants, which are set up for and serve exclusively the particular construction operation and are reasonably near the construction site. When the Comptroller General has had opportunity to consider the term, he has construed it to refer to the "exact confines of the place of performance of the construction work" and not to "work off the site even though performed in the immediate community." 30

Whether particular contract work constitutes "construction of a public work" covered by the Davis-Bacon Act can have significant impacts on agency costs and programs and has been the source of disagreement between the contracting agencies and the Department of Labor. In keeping with the Department's general approach, its Solicitor has in the past construed the act broadly to cover the assembly of a mobile nuclear reactor experimental system; 31 the assembly of 40-foot waveguide modules for subsequent installation into a linear accelerator; 32 and the assembly of the crawler-transporter used at the Kennedy Space Center for lifting and transporting a launch vehicle and spacecraft to its launchsite 33— notwithstanding the contracting agencies' determinations that the contracts involved were not subject to the act.34

The Davis-Bacon Act, by its terms, applies to contracts for construction, alteration, and/ or repair work, but not to operating or maintenance work. The broad interpretations given to "construction," "alteration," and "repair" in Department of Labor regulations and the absence of criteria distinguishing operating and repair work have necessitated extensive administrative reviews for classifying work under contracts for the management and operation of Government-owned facilities. Employees of such contractors usually are covered by collective bargaining agreements providing for wage rates and benefits in accordance with in

30 U.S. Comptroller General, Opinion B-148076, July 26, 1963. 31 U.S. Solicitor of Labor, Opinion DB-52, Oct. 14, 1966. 32 U.S. Solicitor of Labor, Unnumbered Opinion letter to AEC, Jan. 13, 1965.

33 U.S. Solicitor of Labor, Opinion letter to the General President of the International Association of Bridge, Structural and Ornamental Iron Workers, AFL-CIO, dated Aug. 14, 1964.

34 In all of these situations, the agencies' positions were upheld eventually. U.S. Comptroller General, Opinion B-161858, Oct. 11, 1967; U.S. Comptroller General, Opinion B-150828, Feb. 18, 1965. In the third case, the agency appealed the Solicitor's ruling to the Department of Labor Wage Appeals Board, which reversed the Solicitor's Opinion.

dustrial rate structures rather than construction trade rates. To avoid the complications engendered by having two rate structures for the same employees, careful reviews of work projects are made to screen out Davis-Bacon work; items of work which are considered "covered" work are subcontracted out. Both cause added costs to the Government. The lack of adequate criteria for distinguishing noncovered work in these situations also results in labor unrest-when work is contracted out to satisfy Davis-Bacon requirements, employees of the operating contractor are unhappy; when a determination is made that a particular job can be classified as operating or maintenance, there is often concern by union representatives that the Davis-Bacon Act is being undercut.

The use of operating or management contractors for conducting Government programs largely developed during and after World War II. While cooperative efforts of organized labor, contracting agencies, and the Department of Labor have resulted in some alleviation of the problems generated by the scope of this type of work, no action has been initiated to examine the overall problem.

BASIS FOR DETERMINING PREVAILING WAGES

The act provides that employees will be paid at not less than the prevailing wage rates as determined by the Secretary of Labor. The Department has defined the term "prevailing" wage rate in 29 CFR, part 1, section 1.2(a) (1) through (3), to mean:

The rate of wages paid in the area in which the work is to be performed to the majority of those employed in that classification in construction in the area similar to the proposed undertaking.

In the event that there is not a majority paid at the same rate, then the rate paid to the greater number: provided such greater number constitutes 30 percent of those so employed.

In the event that less than 30 percent of those so employed receive the same rate, the average rate.

This definition is generally referred to as the "30 percent rule."

The GAO report 35 discussed above noted cases where the use of the 30 percent rule resulted in the determination of minimum wage rates significantly higher or lower than the rates actually paid to the majority of the workers in a classification. An example in the GAO report involved a determination of $4.25 an hour as prevailing for carpenters in an area based on a survey of 102 carpenters-31 were paid an hourly rate of $4.25 and 71 were paid hourly wage rates between $2.50 and $4.00.

EFFECT OF IMPROPER WAGE DETERMINATIONS

In Report B-146842 the Comptroller General also summarized findings on 29 selected projects and estimated that costs were increased 5 to 15 percent, or about $9 million of the total $88 million involved, because wage rates were established at levels higher than those that actually prevailed in the area of the project. GAO's review of the Department's wage determination program disclosed many examples of "improper" wage determinations.

GAO attributed the issuance of improper wage determinations to insufficient wage and fringe benefit information.36 Improved data collection was recommended in each of the seven reports (dating back to 1962) preceding Report B-146842. This finding was corroborated by representatives of the Department of Labor, who stated that the collection of basic hourly rate of pay and fringe benefit data was the most difficult problem in the administration of the act, particularly in the area of residential housing, where a survey is almost always necessary due to the unavailability of wage data.

The accuracy of wage determinations was one of the chief concerns of contractors and contractor associations interviewed during our study.

Note 6, supra, pp. 22-23. *Note 6, supra, pp. 9, 10, 28.

SUBMISSION OF WEEKLY PAYROLL RECORDS

37

A Department of Labor regulation " requires that any contract subject to the labor standard provisions of the Davis-Bacon and related acts must contain a stipulation that the contractor will submit weekly a copy of all payrolls to the contracting agency. These copies must be preserved for a period of three years from date of contract completion.

Verification of the weekly payrolls by Government personnel is a time-consuming and costly activity. Resident engineers and other contracting personnel directly responsible for the maintenance and inspection of such records were almost unanimous in their conclusion that few, if any, violations of significance were ever disclosed as a result of their review and verification of the weekly payrolls. The requirement is also costly to contractors and contributes to the cost of construction. Contractors interviewed in our studies identified as a major item in their overhead the preparation of reports such as the weekly payroll records under the Davis-Bacon Act and Standard Form 100, "Employer Information Report EEO-1" required jointly by the Office of Federal Contract Compliance and the Equal Employment Opportunity Commission. With respect to weekly payroll records, they stated that although computer payroll sheets could be submitted in lieu of a standard payroll form, the requirements were sufficiently different so as to require separate programming and extra computer time. The Associated General Contractors of America has recently estimated the annual cost to contractors only of compliance to be $190 million.38

The submission of weekly payroll records is not required under other laws containing labor standard provisions. Although it may be desirable to retain a payroll requirement for Davis-Bacon Act purposes, both costs and administrative burdens would be reduced by providing for the submission of a notarized statement at the beginning and end of each contract, with appropriate penalties for falsification, that the wages and fringes to be paid

37 29 CFR, part 5, section 5.5 (a). Based on 40 U.S.C. 276 (c). 38 Letter from The Associated General Contractors of America to the Commission, Sept. 1972.

(and paid) on the project would (did) meet the requirements of the Davis-Bacon Act.

THE MILLER ACT

The Miller Act 39 is the Federal construction bond statute. It was enacted in 1935 and requires, in general, performance and payment bonds under any Federal contract in excess of $2,000 for the construction, alteration, or repair of any public building or public work of the United States. The act's application is coextensive with that of the Davis-Bacon Act. It was designed to replace and correct the shortcomings of the Heard Act of 1894, a law that required prime contractors to provide a single penal bond which served as both the performance and the payment bond.

Under the Miller Act, two separate bonds are required-a performance bond and a payment bond.40 The requirement for a performance bond is intended to protect the Government against failure of the contractor to complete construction work, while the payment bond is, in effect, a substitute for the protection afforded on private construction projects by a mechanics lien, a remedy not available against the Government because of the doctrine of sovereign immunity.

Problem Areas

Although the Miller Act bonding requirements are beneficial to Federal construction procurement, the act presents a number of problems which impact the procurement process and construction costs.

39 40 U.S.C. 270a-270d (1970).

40 Bidders are also customarily required to post security or bid bonds. (See ASPR 10-102 and FPR 1-19.103-3 and 4.) However, there is no general statute requiring bid security. The purpose of the bid bond is to demonstrate the good faith of the bidder and to guarantee that he will enter into the contract, if awarded, and will furnish the required payment and performance bonds.

Also, there is no general statute requiring suretyship in connection with procurement of supplies or services on behalf of the Government. Bonds are sometimes required in connection with such procurements, but purely on the basis of administrative discretion. (See ASPR 10-104 and FPR 1-19.104.2 and 1-19.105.2.)

DOLLAR THRESHOLD

In practical effect, requiring performance and payment bonds for contracts in excess of $2,000 means requiring bonds for all construction contracts-for the same reasons discussed above in connection with the Davis-Bacon Act. Our study indicates that the $2,000 threshold for bonds is expensive to the Government and limits competition on small construction jobs; either because potential construction contractors will not go through the paperwork and expense of getting bonds or are unable to do so. The number of construction contracts under $25,000 is substantial although it represents only a fraction of the total construction expenditures; for example, in fiscal 1972 the number of actions representing military prime contract awards for construction between $10,000 and $24,999 numbered 6,095 (over 44 percent of the reported construction contracts)," for a value of about $94 million.12 The types of work involved included small projects for repair and alteration, work in remote areas such as fences and cattleguards, and rehabilitation of housing in preparation for sale.

COST-TYPE CONTRACTS

The Miller Act, as currently written, authorizes DOD to waive the bonding requirements for cost-type contracts. Other agencies who do not have that authority must obtain such bonds or resort to other legal grounds for omitting this requirement.

DOD has exercised its waiver authority under the act with respect to cost-type contracts and has required that cost-type contractors obtain Miller Act "equivalent" bonds from their fixed-price subcontractors. subcontractors. Although these bonds are intended to provide protection equal to that under the Miller Act, they are "private bonds" and must be enforced under State law rather than the Miller Act.

Lacking the DOD waiver authority, AEC and NASA apply the bond requirements of the act to fixed-price subcontractors under their cost-type prime contractors. Although the Comptroller General has held that the bonds.

41 Calculated by the Commission.

42 Letter from the Office of Assistant Secretary of Defense (Installations and Logistics) to the Commission, Aug. 25, 1972.